EGYPT Law and Practice Contributed by: Arig Ali and Lana Abd El-Rassoul, Zaki Hashem, Attorneys at Law
No 159 of 1981, as amended (the Companies Law). From a legal standpoint, there are no restrictions preventing these entities from invest - ing in other companies. Holding companies are defined by the Capital Market Law as: “companies (i) carrying out the activity of establishing or participating in com - panies undertaking NBFS activities; or (ii) have more than half of their investment portfolio con- sists of NBFS companies” . As such, they are regulated by the Capital Market Law, its Execu - tive Regulation and the regulations issued by the FRA in this regard. Ordinary companies incorporated under the Companies Law can invest in companies and, at the same time, remain outside the umbrella of the Capital Market Law as long as they do not fall within the definition of holding companies. Consequently, there is no effective mechanism to quantify the number of entities undertaking VC activities on a de facto basis. Decision-Making Process In foreign jurisdictions, VC fund governance typically centres around the GP, entrusted with broad authority to manage the fund in accord - ance with pre-agreed policies laid out in the limited partnership agreement. In return, the GP bears unlimited liability – although this can be mitigated contractually – for the fund’s manage - ment. Such straightforward delegation of authority has only been possible within Egypt’s regulatory framework since recent reforms. Before Decree 2018 allowing CLSs to carry out VC activities, it was not legally possible to replicate the tradition - al GP model. Since most Egyptian VC structures were created as JSCs, decision-making powers
were distributed across corporate bodies such as the Board of the Directors and the General Assembly of Shareholders. To address this, in practice, VC companies could enter into tailored management agreements granting broader powers to an appointed man - ager – often mirroring the role of a GP – subject to appropriate corporate authorisations. While this workaround provides some flexibility, it does not reflect the structures commonly encountered by foreign investors in other jurisdictions with more mature VC fund regulations. The corporate governance structure of a POF, or Private Ownership Fund, further illustrates the divergence from international VC models. A POF is governed by four main bodies: (i) the Board of Directors; (ii) the General Assembly of Founders; (iii) the Certificate Holders’ Assembly; and (iv) the fund’s Investment Manager. Each body has distinct powers, the rationale behind this being to contribute to a carefully balanced system of checks and responsibilities. Documentation In terms of documentation, POFs can only raise funds through an information memorandum (IM) to be approved by the FRA, a template of which is published by the latter. POFs are governed by their Articles of Association (AOA) and the IM, which must be updated annually. GP/LP struc - tures as allowed under Decree 2018 also have a much simpler IM to be shared with the investors and the FRA (the template of which is annexed to Decree 2018), and, together with other VC structures, typically use AOA, Subscription Agreements (SSAs), Shareholders’ Agreements (SHAs), and management agreements. The GP/ LP’s IM will determine the percentage and fields of the company’s investments, the maximum limit of investment in a single company, the cir -
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